Navigating the New EU Omnibus Package (and Avoiding Blind Spots)

The European Commission's recent proposal of the EU Omnibus Package marks a significant step towards simplifying the regulatory landscape for businesses.

By focusing sustainability reporting requirements on the largest corporations, by limiting due diligence obligations to direct business partners, and by reducing the frequency of reporting, the Commission aims to reduce red tape, promote efficiency and enhance European companies’ competitiveness.

While trialogues are currently ongoing to determine if the Commission proposal is going to be welcomed, it's important to understand that simplification doesn’t mean diminished responsibility. The objective is to streamline sustainability while maintaining accountability.

In this article we’ll summarize the changes and explain what it means for businesses operating in the EU.

Contents:

1. Purpose of the EU Omnibus Package
2. Key Features and Changes
3. Timeline: Implementing the EU Omnibus Proposal
4. Impact on Businesses
5. The Importance of Product Origin Verification

Purpose of the EU Omnibus Package

The EU Omnibus package is intended to find the right balance between achieving the Green Deal’s objective and enabling businesses to grow in a competitive environment. The EU Commission proposed amendments to existing legislation, including the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD).

The EU Commission’s purpose is to consolidate existing obligations, creating a more cohesive and manageable framework for corporate sustainability across EU member states.

This focused approach is designed to make due diligence more practical and achievable for companies, allowing them to concentrate their efforts on addressing the most critical sustainability issues.

The emphasis is on efficiency and effectiveness, ensuring that businesses can contribute meaningfully to a more sustainable future without being burdened by unnecessary complexity.

Key Features and Changes

A key feature of the Omnibus proposal is its commitment to protecting smaller businesses from excessive sustainability information requests. This addresses the "trickle-down" effect, where smaller businesses are inundated with reporting demands from larger companies within their value chains.

However, this only prevents excessive reporting requests – it doesn’t remove accountability entirely. If large companies need additional information to meet reporting requirements, and they cannot obtain that information in any other reasonable way, they are still able to request it of suppliers.

Specifically, the regulation introduces the following key changes:

1. CSDDD implementation delay: The deadline for the CSDDD is postponed by one year, from July 26, 2027, with the deadline for Member States to transpose the Directive into national law and the initial application for the largest companies delayed to July 26, 2028. This provides businesses with additional time to prepare for the new requirements.
2. CSRD scope reduction: Companies with less than 1,000 employees and €50 million in turnover will be excluded from the CSRD's scope. This dramatically reduces the number of companies required to report, focusing efforts on larger entities.
3. Simplified due diligence: The regulation simplifies due diligence obligations under the CSDDD, by removing companies’ responsibility to conduct in-depth assessments of adverse impacts at the level of indirect business partners and by limiting due diligence obligations only to direct business partners, except for those circumstances in which the company has plausible information suggesting that adverse impacts may arise.
4. Flexibility in business relationships: Under the CSDDD, the obligation to terminate business relationships as a last resort is removed, replaced with the option of suspension. This offers companies greater flexibility in managing their partnerships.
5. Double materiality maintained: The "double materiality perspective" remains unchanged, meaning companies must still report on how sustainability risks affect their business and impact on people and the environment.

Timeline: Implementing the EU Omnibus Proposal

The new Directive proposes a staggered implementation timeline. The application of all reporting requirements in the CSRD for companies due to report in 2026 and 2027 will be postponed. The CSDDD application is postponed by one year to 2028.

These proposals will now be submitted to the European Parliament and the Council for consideration and adoption.

Impact on Businesses

The Omnibus' focus on large companies reinforces their crucial role in driving sustainability. These businesses will face new compliance requirements that prioritize accountability and transparency.

While the simplification of the compliance process reduces the burden on companies operating in the EU, especially SMEs, it's essential to recognize that sustainability remains a critical concern for all businesses. Stakeholders, including investors and customers, are increasingly demanding evidence of ethical and environmentally responsible practices, regardless of company size.

The risk of overlooking environmental abuses or unethical practices further down the supply chain is a real concern. The focus on large companies, while intended to make due diligence more manageable, may inadvertently obscure potential abuses further down the supply chain.

This potential blind spot exposes businesses to ongoing risks of non-compliance, financial penalties, and, perhaps most importantly, reputational damage in the eyes of increasingly conscious consumers and discerning investors.

Savings accrued from reduced administrative costs and reporting effort should not just be pocketed. They should be used to mobilize additional investment to support concrete programs that improve sustainability and traceability for business.

The Importance of Product Origin Verification

Product origin is a key influence on environmental impact, particularly for products like fashion and apparel, coffee, and red meat and cattle. In today's market, sustainability means brands must be able to definitively prove the source of their raw materials.

Quite simply, there can be no sustainability without traceability.

To mitigate the risks of non-compliance and reputational damage, businesses must invest in robust product origin verification systems. This involves implementing ongoing traceability and authentication programs that provide comprehensive oversight of raw material origins.

Scientific origin verification solutions like those offered by Oritain play a vital role in verifying ESG claims. These programs can audit products at multiple stages of the supply chain, ensuring that origin claims are authenticated and are not associated with harmful practices like deforestation or forced labor.

This testing provides substantiated scientific evidence of product origin, bolstering supply chain integrity and building consumer trust.